The Tumultuous Birth of the Loss and Damage Fund: a Game Changer, or More of the Same From Global Climate Negotiators?

The creation of a Loss and Damage Fund was agreed to at COP27 last year, though details surrounding the fund are still being negotiated. (Joseph Eid/AFP via Getty Images)

In the world of global climate negotiations, a critical one took place this past Friday, October 20th. As the fourth session of the Loss and Damage Transitional Committee was coming to an end with barely any time for negotiators to read a last-minute text, a decision was made to add a fifth session around the pre-COP meeting November 3-5th. Countries are negotiating the details of a Loss and Damage Fund (known as the Fund), established last year at COP27, to cover the damage being felt by developing countries experiencing adverse, and costly, effects of climate change. With climate change now producing worsening effects, this kind of funding was a gap in the 2011 Green Climate Fund (GCF).

Many long-time negotiators noted the discussions around the Fund have been eerily similar to those surrounding the Green Climate Fund. The GCF was adopted in 2011 in Durban, South Africa during the global climate Conference of the Parties for that year, COP17. The GCF created a channel for developed countries to assist developing countries transition to a climate-resilient and low-carbon future. The creation of the GCF as a stand-alone global fund, accountable to the parties of the UN Framework Convention, was a significant win for developing countries. The GCF’s unique structure divided equally its voting (between developed and developing countries) and its resources (between mitigation and adaptation). Today, the GCF’s portfolio is $48.3 billion USD and is the largest of the UNFCCC climate funds.

The re-surfacing of issues from the GCF has caused some on the Transitional Committee who are negotiating the Fund’s text to express a clear sense of déjà vu, as the same issues from COP17—location, governance, and sources—are discussed in a different context. At the same time, Loss and Damage Fund signatory countries recognize that this fund needs to learn lessons from GCF’s institutional set up and its experience over the last 12 years—which is easier said than done. Developing countries have encountered difficulties with accessing funds from the GCF, while some developed country financial commitments for the fund have not been kept.

In the Fund’s current negotiations, there is the most agreement around the scope, or what the Fund will do. There is general consensus that it will focus on addressing the losses and damages incurred, both economic and non-economic, from extreme and slow onset weather events alike. For an extreme event like a tropical storm, this may involve rebuilding homes and schools where they were knocked down. For a slow onset event like sea level rise, this may involve relocating homes and schools to a new location, e.g., further inland or to another island.

However, where the Fund will be hosted (located) is causing major disagreement in the negotiations taking place in the Transitional Committee. Here division has fallen clearly along North-South lines. Some developing countries support a Fund that will have its own legal personality and capacities—like the GCF. Developed countries, on the other hand, support a new Fund that is “hosted” (i.e., receives legal and other support) by the World Bank. At stake is the speed with which the Fund can start its work, and the scale with which it can raise, invest, and leverage scarce resources.

Inside the developing country coalition (G77), there is a broad spectrum of positions. On one end are those who will only consider a stand-alone fund that is built from scratch; on the other end are those who would only entertain the proposal if the Fund sits within an existing institution, so long it meets several conditions, such as access to non-World Bank members; direct access to national entities; and the capacity to leverage resources and go to capital markets. Speaking to negotiators last week at the fourth Transitional Committee meeting (TC4) in Aswan, World Bank representative Maitreyi Das candidly expressed the Bank’s interest: “Do we want to host the fund? Yes, yes, yes.” At TC4, Das indicated that the Bank is willing to consider the priorities and assurances the G77 and China need in order for it to host the Fund.

Other issues roiling the negotiations include sources, eligibility, and resource allocation. One issue of resources involves who will contribute to the Fund, and how much. Twelve years ago, at COP17, the parties to the conference agreed that developed countries would offer financial inputs. Today, this language is a red line for the Global North. Indeed, the GDPs of some emerging economies are reaching those of developed countries. China, for instance, now possesses a GDP greater than that of the entire European Union (EU) and is also the world’s largest emitter by volume. Yet, developed countries still pollute multiples more per capita and have supplied the bulk of historical emissions. Thus, in the context of historical responsibility, particularly in reference to Loss and Damage, the issue of who pays has become increasingly controversial. On allocation, there is still a passionate debate on who should receive funding from the Fund, and how much least developed countries (LDCs) and small island developing states (SIDS) would receive vis-a-vis other vulnerable countries.

Other matters that are important but seem to be off the table during this round of negotiations are scale and initial capitalization of fund. So far, no country has made any commitment to contribute to the early capitalization of the Fund, which adds to the general mistrust between Global North and South in the Transitional Committee. As COP28 at the end of November is fast approaching, it would be a sign of mutual trust and intent to work together if several developed and developing countries announced financial commitments to the Fund. The scale of the Fund has remained a taboo topic, since developed countries have resisted any discussion on how much they might contribute. However, developing countries have argued that the scale of the fund should be at least US$100 billion a year in programming by 2030 as an initial commitment, and that is in the current text in brackets and unlikely to be supported by Western countries.

Exhausted and frustrated on Friday, the decision to add a fifth session immediately following pre-COP in Abu Dhabi in November came after it was clear there would be too little time to sort out the three main issues—hosting, sources, and allocation. While some countries were resistant to meet again, there is hope that in the next and final round, delegations will come to an agreement. With the news of a September 2023 global temperature average above the 1.5 pre-industrial average, the agreement on Loss and Damage can help build momentum for what the world needs now: a successful COP28.